Among President Pedro Pablo Kuczynski’s key pledges in the 2016 election campaign was the “massification of natural gas” to serve residents and industrial users across southern Peru. Another feature of Peru’s policy focus is to diversify gas exports, including the potential renegotiation of the country’s liquefied natural gas (LNG) contract with Mexico.


 The Camisea gas field, which began production in August 2004, catapulted Peru into the big league of the continent’s major gas players. According to the “BP Statistical Review of World Energy 2016”, Peru had total proven natural gas reserves of 14.6trn cu feet at the end of 2015, just behind Brazil, which has 15trn cu feet. Venezuela has by far the greatest reserves in the region with 198.4trn cu feet.

Peru also has a healthy reserves-to-production ratio of 33.1 years, the highest on the continent after Venezuela’s 173.2 years. Peru’s natural gas production pre-Camisea was negligible, but by 2015 the country was producing 12.5bn cu metres, or 11.2m tonnes of oil equivalent, up from just 1.5bn cu metres – 1.4m tonnes of oil equivalent – a decade earlier.

Peru made significant efforts towards becoming an energy exporter in the early 2000s with the construction of a 4.4m-tonnes-per-annum LNG train built and operated by Peru LNG, a consortium led by US firm Hunt Oil. Inaugurated in 2010 after a $3.8bn investment, the project exports 70% of its output to Mexico, where Peru LNG has a 15-year contract with the Federal Electricity Commission, while the remaining 30% is sold on the international spot market.

The Camisea consortium, led by Argentine firm Pluspetrol, is investing $500m into the development of nearby Block 88. Output from the block, which has gas reserves of 10trn cu feet, would be transported via the 1000-km GSP from the south-east of Peru to the ports of Ilo and Mollendo on the southern coast.

Meanwhile, international companies, including Pluspetrol and Spain’s Repsol, have been investing heavily in the exploration of three neighbouring prospects – blocks 57, 58 and 76. Block 57, held by Repsol, has up to 2trn cu feet of gas. Given that production from these blocks is expected to exceed demand from the country’s southern thermal power stations, the construction of a second LNG train to export gas to Peru’s southern neighbour, Chile, has also been earmarked as a potential boon for the sector.


Natural gas is transforming the country’s energy usage by providing cheaper fuel for domestic and industrial power generation, while also encouraging power generators and industrial and commercial users to switch over from using diesel and other heavy fuels.

Annual natural gas consumption rose by double-digit figures in the decade after Camisea came on-stream in 2004, with 2015 consumption standing at 6.8m tonnes of oil equivalent, according to BP data. To put in context, Peru consumed 5.3m tonnes of oil equivalent in hydroelectric power that same year. The transport sector currently accounts for about 10% of total demand, while this figure also looks set to increase thanks to growing vehicle conversions to liquefied petroleum gas (LPG).

The Camisea project has proven and probable reserves of more than 908m barrels of natural gas liquids (NGLs), operating at a rate of over 100,000 barrels per day (bpd). The NGL from Camisea is transported through a secondary pipeline from the Malvinas processing station to Pluspetrol’s cracking plant in Peru’s Pisco province. In particular, demand for LPG from taxi and commercial vehicle drivers has soared in recent years, with annual sales of LPG doubling to 18.2m barrels between 2007 and 2014.

The Supervising Organisation of Investment in Energy and Mining (Organismo Supervisor de la Inversión en Energía y Minería, OSINERGMIN) is also backing vehicle scrappage and conversion schemes, offering financial and technical support. OSINERGMIN is aiming for the conversion of 21% of vehicles, both light and heavy, by 2020, rising to 41% by 2025. In an optimistic scenario, conversions in Lima, along with plans for the gas-powered Lines 2 and 3 of the Lima metro, could help save a projected 10m tonnes of C0 over the course of the next decade. However, the LPG market has not been without its own challenges, prompting calls for the new government to reinforce and reform existing regulations.

The cracking plant in Pisco also produces propane, butane, diesel and naphtha from the gas delivered from Camisea. Around 4000 bpd of diesel from the plant covers domestic demand, replacing the need for imports. Of an eventual capacity of 16,000 bpd of propane and butane, half will serve the domestic market, with the rest set for export to Ecuador and Chile.

Changing Tides

The 1000-km GSP project – along with a planned major petrochemicals complex in Ilo that would use natural gas as a feedstock – is yet to be completed. A 30-year, $7.3bn contract for the construction, operation and maintenance of the pipeline was initially awarded to a joint venture between Brazilian firm Odebrecht and Enagas of Spain in June 2014. The project was slated for completion in 2018, however, the consortium has recently become embroiled in the regional corruption scandal concerning Odebrecht (see Construction and Economy chapters).

In January 2017 the joint venture lost its concession contract, which reverted back to the state. The government is now preparing a new bidding round for the contract. In mid-April 2017 Gonzalo Tamayo, the minister of energy and mines, announced that the new tender would be put up in the first quarter of 2018, delayed from the fourth quarter of 2017, with more details of the bid still to be released. Notably, as this will be a completely new tender, new investors will not be liable for any claims against the previous consortium. Several investors have reportedly expressed interest. Works on the GSP are now expected to begin in mid-2018, putting the project about 18 months behind schedule.

Elsewhere, Gas Natural Fenosa Perú is rolling out natural gas to 11,660 homes in Arequipa, Tacna, Ilo and Moquegua in 2017 as part of its southern Peru area concession. The plan is to bring supplies to 64,000 homes by 2022, in addition to servicing 13 gas stations.

Mexico Talks

Peru’s 15-year gas export contract with Mexico pegs natural gas prices to Henry Hub, the US industry benchmark, which has more than halved in recent years amid the exponential increase in shale gas supplies. Efforts to amend the terms of the contract are ongoing as both sides express interest in reaching a deal, particularly given that Mexico is now receiving much more gas via pipelines from the US, which is also arriving at a lower cost in this revised environment.

According to Tamayo, the Peruvian government is seeking to define a strategy that establishes what conditions are applicable to LNG exports, based on an arbitration award won by Peru at the World Bank’s International Centre for Settlement of Investment Dispute in 2012, which related to the conditions of sale of Camisea exports to third-party markets.

Together with implementing the arbitration award, the administration is also seeking a renegotiation to reduce the exposure of Peruvian gas to the Henry Hub spot price, which it is hoped will help boost exports to other markets. The UK and other European countries, all with rapidly growing demand for gas, are among those now receiving LNG imports from Peru as it seeks to quickly diversify its customer base.


Peru’s proven oil reserves stood at 1.4bn barrels as of the end of 2015, according to BP data. Roughly 90% of the country’s output is generated by four companies: the US-based Occidental Petroleum, Argentina’s Pluspetrol, Petrobras of Brazil and the national company, Petrotech. Another state-owned company, Petróleos del Perú (PetroPerú), operates refineries and petrol stations. Despite the significant oil reserves, production remains in decline. In 1994 Peru produced 128,000 bpd, while by 2015 that figure was 113,000 bpd, according to BP. Oil production in 2016 was affected by continuing problems associated with spills from the 1106-km Northern Peruvian Pipeline, which runs from the Amazon to the Pacific coast, and has a capacity to transport 12,000 bpd. After a series of incidents the pipeline was closed in August 2016 for repairs, with a scheduled reopening date of mid-2017. The spills led to a complete halt in oil output from several blocks, with overall oil production dropping sharply as a result, sitting at 38,000 bpd in December 2016.

Under Peru’s 1993 Organic Hydrocarbons Law, oil and gas deposits are state property and may be explored and exploited under a licensing agreement with Perú- Petro, the state entity with responsibility for awarding and supervising oil contracts. However, exploration and development has fallen away amid lower prices, high development costs and social protests.

In an interview with OBG, Janine Delgado, head of the hydrocarbons sector at the National Society for Mining, Oil and Energy (Sociedad Nacional de Minería, Petróleo y Energía, SNMPE), said that the upstream sector, in particular, was “complicated”, noting that 10 lots had been returned in 2016, with 22 others currently in force majeure, meaning that unforeseeable circumstances could prevent parties from fulfilling contracts. Of the 54-57 existing contracts, just 30 were operational, with many of these at a reduced level, she added.

Delgado welcomed the government’s efforts to restructure PetroPerú, and expressed hope that under the new administration the sector will be able to overcome negative trends seen in recent years. Delgado cited the recent major energy reform in Mexico as evidence that national energy policies must change, adapt and have some flexibility in order to respond to market shocks like the sharp fall in oil prices that has affected the industry since mid-2014.

Suites Orrantia


Turning to the downstream sector, Delgado welcomed the expansion of Repsol’s modern Pampilla refinery in Callao, which processes about half of the country’s output. Following the latest expansion, inaugurated by the president in October 2016, total refining capacity is now 117,000 bpd, with the company boasting a much cleaner operating facility.

Delgado expressed some concern about the future of PetroPerú’s main Talara refinery, which has been pending modernisation for a decade. PetroPerú now finally hopes to secure financing for the long-delayed overhaul of the facility. Plans to upgrade the refinery were initially proposed in 2007, but were never completed. In December 2013 then-president Ollanta Humala approved legislation to restructure PetroPerú and facilitate the refinery project by providing guarantees on loans taken out by the company. As part of the legislation, PetroPerú was barred from any other major investment until the refinery upgrade was completed.

In December 2016 President Kuczynski issued another decree restructuring PetroPerú, stressing the need for the completion of the refinery works. Talara’s capacity stands at 65,000 bpd, with the upgrades aiming to boost this figure to 95,000 bpd, while also meeting stricter environmental regulations.

PetroPerú had previously signed a number of agreements relating to the refinery expansion: with Spain’s Técnicas Reunidas to undertake engineering work; with the French bank Société Générale to secure a syndicated loan for $1.5bn; and with the Spain’s Export Credit Agency for insurance. These agreements, which did not secure approval under the Humala administration, have now been resurrected and look more likely to move forward in the short term.

Parts of the broader refinery expansion agreement will need to be renegotiated. However, the company insists that it wants to progress on the matter. The budget for the remaining work has been put at $5.4bn, with a scheduled completion date of 2020. In early March 2017 the PetroPerú board approved the issuance of up to $3bn in international bonds, which along with the syndicated loan, increased funding to $4.5bn. The remainder of the financing has yet to be clarified.

Electrification Rate

Peru is in the enviable position of having hugely abundant energy reserves. The country produces up to 50% more electricity than it consumes. The new government is aiming for an electrification rate of 100% by 2021, from an estimated rate of 93% in 2016. However, at the same time, more than 2m people still lack power, of which 77% live in remote and inaccessible areas, according to the SNMPE.

Capacity & Generation

Total electricity generation has tripled in the last 20 years, driven by major investment in gas and hydropower plants. Output reached 51,645 GWh in 2016, according to the SNMPE, with production rising by a steady 6.1% a year on average between 2011 and 2016. Current total installed capacity is 12,259 MW, of which 4190 MW is hydropower, reflecting Peru’s significant hydrological resources. The country’s total potential hydropower capacity is immense. A 2013 study by the US Geological Survey put Peru’s total feasible hydro capacity at 135,377 MW. The country’s energy matrix was traditionally dominated by the hydro sector, but the major investment in natural gas in recent years has increased the proportion of thermal energy to over a third of the total.

While hydroelectricity output fluctuates seasonally, it still accounts for between half and two-thirds of total energy output, with thermal ranging between 30% and 48%. For example, SNMPE’s March 2017 bulletin shows the hydro-to-thermal production ratio was 67.3% to 30.8%, with the figures taken during the wet season. However, in November 2016 the difference between hydro and thermal production was 55% to 41%.

Overall in 2016, 46% of the national grid’s power was generated by natural gas, according to the National Electric Interconnected System (Sistema Eléctrico Interconectado Nacional, SEIN), with hydro accounting for 52% and other renewables 2%. In 2015 thermal power made up 48%, highlighting the slight variations that occur from year to year. The transport sector accounts for around a third of total gross electricity consumption, while a quarter is used by the industrial sector, where demand has been rising. Residential consumers account for about 17%. The build up of excess supply has come about as a result of slower economic growth in recent years, even though previous investments, led by those at the Camisea gas field, have delivered a surge in natural gas production. Meanwhile, delays to large mining projects, which coincided with lower global commodity prices, have also resulted in a lower than expected demand for power.

While this situation is now in reverse thanks to a new boom in the copper sector, Peru has sufficient generating capacity to meet demand until 2025, even without the approval of additional projects, according to the Interconnected System Operator, a Peruvian nonprofit organisation made up of generators, distributors and free users. According to SEIN, in 2016 Peru had an unusually high effective reserve margin of almost 77%, well above the typically recommended level of 20%.


Demand for energy has been growing at a steady rate of about 8% a year. According to SEIN data, maximum demand for power in 2016 was 6492 MW, meaning a generation surplus of almost 50%. Marginal costs are low in Peru, with 2015 levels falling to an annual average rate of $14.70 per MWh, the lowest in several years, before rebounding to $21.40 per MWh in 2016. Yet despite the excess supply and low spot prices, regulated tariffs have continued to increase by double-digit percentage rates, averaging 13-17% in 2015-16, which has weighed on households and business. With spot prices remaining low, and a sizeable gap between spot prices and regulated tariffs, there is concern that oversupply may discourage investment.

Upping Investment

Projects under development will add up to another 4.4 GW of installed capacity by 2019, including the GSP. As of the end of 2016 the pipeline of investments in the sector for the upcoming seven years was worth over $12bn, according to state investment agency ProInversión and the regulator, OSINERGMIN. Among these are two hydroelectric projects, the 730-MW Veracruz scheme in Amazonas/Cajamarca and the 300-MW Molloco scheme in southern Peru; a cold reserve plant in Iquitos; and two transmission line projects, the 220-KV Moyobamba-Iquitos line and the 500-KV Mantaro-Marcona-Socabaya-Montalvo line.

The previous government had called for hydro projects to deliver 1200 MW of power by 2020-21, with investments of up to $3bn. The pipeline of projects under environmental assessment amounts to some 10,000 MW. However, many of these, located in the Amazon region, have encountered resistance. According to ProInversión, remaining infrastructure investment needs for the electricity sector amount to $30bn.

Distribution & Transmission

Despite more than adequate supply, there are still sizeable disparities in distribution between Lima and the rest of the country. Distribution in Lima, by far the main demand centre, has been privatised, with two private players, Edelnor and Luz del Sur, each having their own districts. A third private distributor, Electro Dunas, operates in the southern city of Ica. The rest of the market is served by state distributors, controlled by the National Fund for the Financing of State Entrepreneurial Activities (Fondo Nacional de Financiamiento de la Actividad Empresarial del Estado, FONAFE).

Some state distributors have been judged to function more efficiently than others, and are tentatively targeted for privatisation in the future. Distriluz, which operates in Peru’s north, is considered one of the more efficient state distributors. “Energy distribution in Peru is public, except in Ica and Lima. This has resulted in a delay in technological progress in public energy distribution, given the government’s financial and technical capacity constraints,” Juan Miguel Cayo, general manager of Fenix Power, told OBG.

Speaking to OBG, Alberto Pérez Morón, general manager of Distriluz, was candid, saying that the distribution sector “needs air”. There is some expectation the new government might consider allowing state distributors to look for financing on capital markets. Morón cited the example of Lima’s water company, Sedapal, which in April 2015 met International Financial Reporting Standards, an important and obligatory step for a company seeking capital market financing. Morón put investment needs for the distribution sector at a not insignificant $500m over the course of the next four to five years, which he said would “improve quality”. Among the other challenges for FONAFE, he cited a need for more human capital as well as research and development.

Morón was broadly positive about the outlook for the sector, pointing to steady growth in industrial demand for energy. He also stressed that Peru’s legal and fiscal framework was “competitive”, with good access to credit. Cayo largely agreed, telling OBG, “when looking at opportunities for investment in the energy sector, foreign investors should take the following facts into consideration: Peru is one of the most politically stable countries in the region, it has a favourable regulatory framework that transcends presidencies and contracts with the public sector are honoured.”

Aside from the goal of 100% electrification, official efforts have focused on strengthening existing transmission networks. ProInversión’s portfolio of projects planned for concession in 2017 and 2018 include a batch of new transmission lines: the 138-KV Aguaytía-Pucallpa line, with an investment of $37.3m; and the 220-KV Tintaya-Azángaro line, which has an expected investment of $58.8m. Both concessions are for 30 years, with a 36-month build period. There are also two larger 500-KV connections – the Mantaro-Nueva Yanango-Carapongo and Nueva Yanango-Nueva Huánuco lines – running between substations in Huancavelica, Junín and Lima, with investment needs put at $568m. Lastly, there is a $64.4m concession to strengthen part of the Carabayllo-Chimbote-Trujillo grid that serves the north and centre of the country, covering areas including Ancash, Libertad and Lima.


The advent of plentiful natural gas has led to an evolution of the energy sector. The government’s plan to use the country’s reserves to provide cheap fuel not only to underserved citizens, but also to industrial concerns should serve the economy well. Further infrastructure investment, to the tune of some $30bn, will be needed if the country is to reach its ambitious goals going forward, however, these plans are viable.